Hi and welcome to the communities!
The answer to your question regarding quotas - pretty much not doable, at least not on that scale. You can apply quotas on the filer on a qtree level, but creating so many of them is rather impractical.
So... you may have a look into this thread:
http://communities.netapp.com/message/14478#14478
"If they need true directory-level quotas below the root level, we have two partners that can do this--NTP Software and Northern Parklife."
Re security of users folders - all Windows AD access rights are honoured, so this can be sorted fairly easily.
Regards,
Radek